Australia Post: Company Overview
1. Discuss about the Theoretical And the Conceptual Framework Of Economics.
2. Discuss about the Primary players in the supermarket industry of Australia.
The term “market” holds immense significance in the theoretical and the conceptual framework of economics. Market, in economics, is defined as the place of interaction of the demand and the supply side forces, that is, the buyers and the sellers respectively of any commodity or service, where by mutual interaction the price and the quantity demanded or supplied of the particular commodity or service is decided. Thus, market is an elementary and significant part of an economy (Davis 2013).
Market, in turn, also has significant importance and influence on the global commercial scenario. This is because, the profitability, prospects as well as the short term and long-term performance and sustainability of any business depend on the type of market in which the business is operating, which in turn gives a view about the number of buyers and sellers in the market, the distribution of market power among the demand and the supply side players, the nature of demand and supply and also the entry and exit barrier present in the market (Gandolfo 2013).
Keeping this into consideration, the concerned assignment tries to emphasize on the type of market in which the postal company of one of the most significant and dominant economies of the world, Australia, named the Australia Post operates. It also tries to analyse the debates existing regarding the operational framework of the concerned company and its performances and efficiencies in the market in which it operates.
The Australia Post, being the name of the Postal Corporation of the country is a government owned company which is bestowed with the responsibility of offering postal services for the residents of the country, the services being both domestic as well as international (Pc.gov.au 2018). With the head-office situated in Melbourne, the public owned company operates thousands of retail outlets in the country. The company has nearly 15,357 street posting boxes, over 4000 retail outlets and employs more than 30,000 people (Austlii.edu.au 2018). With a revenue generation of nearly 6.8 billion AUD and an operating income of 400 million AUD in 2017, the company is often considered as one of the significant monopolies existing in the country.
The company, being public enterprise, has enjoyed significant monopolistic traits over the years and in spite of a lot of reforms and debates, still in the contemporary period enjoys monopoly over small items, less than 250 grams and although the parcel delivery system in the country is not a monopoly of Australia Post, it still enjoys a considerable market share and market power owing to its natural monopolistic trends and economic efficiencies due to large scale operations in this aspect (SmartCompany 2018).
Natural Monopoly: Meaning and Implications
There have been considerable debates regarding the effects of this natural monopolistic trends of Australia Post over the overall population of the country and its economy, to examine and analyse which it is of utmost importance to understand the theoretical notion of natural monopoly and the assertions regarding the benefit and problems of existence of the same.
In economics, a monopoly is a type of a market situation where there are many buyers and only one seller, which in turn gives the seller full market power and price and quantity deciding capacities, due to the absence of any competition in the market and due to the absence of any close substitute of the product or service which the seller offers to the buyers (Becker 2017).
In this context, a monopoly is said to be natural monopoly when it does not arise out of consolidation, collusion or takeovers but arise due to the advantage of the concerned company in the aspects of high barriers of entry of other potential competitors in the industry. Natural monopolies generally occur in those industries or businesses where the initial fixed cost and start up costs are extremely high or where one company enjoys cost advantages in aspects of collection of raw materials, technologies or other resources of production over the others.
Often in some industries, especially in public good or essential good and service industries natural monopoly is supported as in the presence of one big seller serving a large population, with the expanse of operation, the cost of production goes on decreasing which increases both the welfare of the consumers as well as the profitability of the natural monopolist as shown below:
Figure 1: Decreasing cost with increase in production of natural monopolist
(Source: As created by the author)
This type of market structure often enables the monopolists too exploit their advantages in order to indulge in anti-competitive activities and own-welfare maximizing ones which may be harmful for the population as a whole (Baldwin, Cave and Lodge 2012).
In spite of the presence of natural monopoly in Australia Post over the years and in spite of the argument of cheap prices of mails and parcels being one of the primary arguments supporting the presence of natural monopoly in this government owned company, the company has been showing negative traits in its performances and efficiencies in the last few years as can be seen from the following figure:
Benefits of natural monopoly
Figure 2: Fall in profit of Australia Post
(Source: Postalnews.com 2018)
The profit of the company has fallen significantly over the last few years, much of which can be attributed to fall in the volume of letters as many people have shifted to online mails and the company did not considerably succeed in updating its technologies enough.
Figure 3: Change in the volume of letters
(Source: Postalnews.com 2018)
The cost efficiency of the company is also seen to be withering as the company has been constantly increasing its charges in every respect. The base rates of the company have increased from 50 cents in 2003 to $1 in 2016. The company can also be seen to be exploiting its Post Office Box monopoly by not allowing other private business to deliver parcels to these boxes, thereby implementing unfair means to survive in the country as a monopolist (Theconversation.com 2018). The salary structure of the company is also highly skewed with the CEO and higher officials drawing huge salaries and to compensate the losses the company has announced to fire thousands of its lower level employees which has also drawn severe criticisms.
Conclusion
From the above discussion, it can thus be asserted that the Australia Post, in spite of being a natural monopoly and a government owned company, has in the recent years failed to retain its monopolistic cost efficiencies and the goals for which the monopoly was created. The decreasing cost efficiencies, failure to upgrade, endogenous vested interests, anti-competitive practices and high employee dismissal have led to the creation of dissatisfaction among the general population of the country and in this case, the entry of competitors can be a more cost effective and market efficient solution for the concerned economy.
The definition of market, in terms of economics, as discussed in the previous answer is a wide and broad one and in economic framework there exist different types of market structures, each with their own traits and characteristics. In the global economic framework, there are in general several types of dominant market structures, the primary ones being perfectly competitive market, monopoly market, oligopoly market, monopolistic competition and monopsony market, each varying in terms of the number of demand side and supply side players, the nature of goods and services sold in the market, the market power and decision-making abilities enjoyed by the sellers and the buyers and also the barriers which exist in the market (Baumol and Blinder 2015).
Problems of natural monopoly
Keeping this into consideration, the concerned assignment takes into account the economy of Australia, one of the largest mixed economies in the global framework with highly developed industrial sector and the presence of diverse market structures in different industries in the country, the traits of which show considerable relevance with the market theories in economics.
The concerned assignment, refers to the article named, ‘Down Down’ and ‘Cheap Cheap’ are gone gone: Coles, Woolworths moving away from ‘supermarket price wars’, which highlights the dynamics in the supermarket industry of the country and the assignment tries to discuss and analyse whether the assertions and arguments put forward by the concerned article are correct and whether they hold relevance (Abc.net.au 2018).
The article discusses about the primary players in the supermarket industry of Australia, namely the Coles and the Woolworths and highlights the acute price war and competitions which have existed between these two giants over the last few years. The article highlights that Coles started this price war in 2011, by reducing the price of its own branded milk, to which Woolworths retaliated and this continued over the years.
As per the evidences provided the article the price war has been detrimental to these food and liquor giants in the long term. To prove the same the article puts forward the considerable decrease in the half yearly profit of Coles by 14.1% and also asserts that the profits of the Woolworths has been going up after the same has given up on the price competition strategy (Shanahan, Round and Round 2013). The concerned article ends up with the recommendation of non-price competition strategies like advertisement, which have been taken up by Coles in the recent times and highlighting the benefits of the same for the profits and revenue generation of the companies in the long run.
The supermarket industry in the country can be said to be an oligopolistic one as in spite of the presence of a number of small and medium supply side players, the industry is dominated by a few major giants, the market share of which can be seen as follows:
Figure 4: Market share of the Australian supermarkets (By total expenditures) in 2017
(Source: Roymorgan.com, 2018)
As is evident from the above figure, the Coles and the Woolworths are the two biggest players in the market, each enjoying mote than 30% share in the country in the contemporary period. To maintain their market dominance and to win over each other, these two giants have been engaging in acute price competitions over the years, exploiting their economies of scale and cost efficiency.
Scenario of Australia Post
However, engaging in the price war has not proved to be an efficient for both of the supermarket giants, as can be seen from the following figure:
Figure 5: Market share dynamics over the years
(Source: Tamim.com.au 2018)
As can be seen from the above figure, the growth of both Coles and Woolworths has stagnated considerably and taking advantage of their price competition, the other budget supermarkets like Aldi have been growing significantly in the recent period, thereby posing as serious competitive threats for the companies in the recent periods.
In terms of revenue growth also these two markets can be seen to be losing out to Aldi and facing extreme stagnation in the recent years, which can be attributed to the price war between them.
Price competition is one of the most common traits of the oligopoly market, which however gives rise to a kinked demand curve,
This in turn signifies that in such a situation, a cut in the price by one seller is followed by a cut in the price by other sellers in the market but the opposite does not occur. In this process, each of the competing companies lose a significant amount of profit, which can be seen to e happening in case of Coles as per the assertions of the article (Sushko 2013). This in turn indicates towards the fact that the assertions put forward by the concerned article are true to a considerable extent and non-price competitive policies as a way out, as suggested by the article are also relevant to the situation.
Conclusion
From the above discussion, it can be asserted that the arguments put forward by the article taken into consideration, regarding the price competition between Coles and Woolworths and the negative implications of the same on the profit and sustainability of the companies in the country in the long run are considerably correct and relevant as can be supported by both theoretical assertions as well as empirical evidences in this context. This in turn makes the recommendation of the article, regarding the benefit of the non-price competition in the industry relevant and the concerned companies are also seen to be shifting from the price war to this kind of strategies in the recent periods.
References
Abc.net.au (2018). Why Coles, Woolworths are moving away from the ‘supermarket price wars’. [online] ABC News. Available at: https://www.abc.net.au/news/2018-03-07/why-supermarkets-are-moving-away-from-price/9524110 [Accessed 18 May 2018].
Afr.com (2018). Wesfarmers under the pump as Coles loses momentum. [online] Financial Review. Available at: https://www.afr.com/business/retail/wesfarmers-under-the-pump-as-coles-loses-momentum-20161028-gsdc6b [Accessed 18 May 2018].
Baumol, W.J. and Blinder, A.S., 2015. Microeconomics: Principles and policy. Cengage Learning.
Rogermontgomery.com (2018). Is Woolies trading at a discount?. [online] ROGER MONTGOMERY. Available at: https://rogermontgomery.com/is-woolies-trading-at-a-discount/ [Accessed 18 May 2018].
Roymorgan.com (2018). Aldi hits new high in supermarket wars. [online] Roy Morgan. Available at: https://www.roymorgan.com/findings/7234-woolworths-coles-aldi-iga-supermarket-market-shares-australia-march-2017-201705171406 [Accessed 18 May 2018].
Shanahan, M.P., Round, D.K. and Round, K.A., 2013. cartel Resilience in Australian markets 1901–1967. Revue économique, 64(6), pp.1011-1042.
Sushko, I. ed., 2013. Oligopoly dynamics: Models and tools. Springer Science & Business Media.
Tamim.com.au (2018). Australian Supermarkets: The death of a duopoly. [online] Tamim Asset Management. Available at: https://www.tamim.com.au/20170504-8203australian-supermarkets-ndash-the-death-of-a-duopoly.html [Accessed 18 May 2018].
Austlii.edu.au (2018). What price the Australia Post monopoly?. [online] Www5.austlii.edu.au. Available at: https://www5.austlii.edu.au/au/journals/inCiteALIA/1993/4.pdf [Accessed 18 May 2018].
Baldwin, R., Cave, M. and Lodge, M., 2012. Understanding regulation: theory, strategy, and practice. Oxford University Press on Demand.
Becker, G.S., 2017. Economic theory. Routledge.
Davis, J.B., 2013. The theory of the individual in economics: Identity and value. Routledge.
Gandolfo, G., 2013. International Economics II: International Monetary Theory and Open-Economy Macroeconomics. Springer Science & Business Media.
Pc.gov.au (2018). Industry Commission Submission to the National Competition Council Review of the Australian Postal Corporation Act 1989. [online] Pc.gov.au. Available at: https://www.pc.gov.au/research/supporting/postal/postal.pdf [Accessed 18 May 2018].
Postalnews.com (2018). Aus.PostNe.ws. [online] postalnews.com. Available at: https://postalnews.com/blog/category/worldpostnews/asia-postne-ws/australia-post/ [Accessed 18 May 2018].
SmartCompany (2018). Australia Post is hurting small businesses with PO Box monopoly, says delivery company Sendle – SmartCompany. [online] SmartCompany. Available at: https://www.smartcompany.com.au/growth/australia-post-hurting-small-businesses-with-po-box-monopoly-says-delivery-company-sendle/ [Accessed 18 May 2018].
Theconversation.com (2018). Australia needs a postal service but does the government need to own it?. [online] The Conversation. Available at: https://theconversation.com/australia-needs-a-postal-service-but-does-the-government-need-to-own-it-43995 [Accessed 18 May 2018].
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